Portions of the financial statements for Clear Transmissions Company are provide
ID: 2470378 • Letter: P
Question
Portions of the financial statements for Clear Transmissions Company are provided below.
CLEAR TRANSMISSIONS COMPANY
Income Statement
For the Year Ended December 31, 2016 ($ in 000s)
Sales $ 1,320
Cost of goods sold 500
Gross margin 820
Salaries expense $ 220
Depreciation expense 180
Patent amortization expense 10
Interest expense 40
Loss on sale of cash equivalents 6 456
Income before taxes 364
Income tax expense 182
Net Income $ 182
CLEAR TRANSMISSIONS COMPANY
Selected Accounts from Comparative Balance Sheets
December 31, 2016 and 2015 ($ in 000s)
Year 2016 2015 Change
Cash $ 102 $ 100 $ 2
Accounts receivable 220 232 (12 )
Inventory 440 450 (10 )
Accounts payable 140 134 6
Salaries payable 80 86 (6 )
Interest payable 25 20 5
Income taxes payable 15 10 5
Required: Prepare the cash flows from operating activities section of the statement of cash flows for Clear Transmissions Company using the direct method.
Explanation / Answer
Clear Transmissions Company All Amounts in $ Cash Collections = Sales + Decrease in Accounts Receivable = 1,320 + 12 = 1,332 (a) Cash Payments to Vendors = Cost of Goods Sold - Decrease in Inventory - Increase in Accounts Payable (b) = 500 - 10 - 6 = 484 Cash Payments for Operating Expenses = Salaries Expense + Decrease in Salaries Payable (c) = 220 + 6 = 226 Cash Payments for Interest = Interest Expense - Increase in Interest Payable (d) = 40 - 5 = 35 Cash Payment for Income Taxes = Income Tax Expense - Increase in Income Taxes Payable (e) = 182 - 5 = 177 Thus, Cash Flows from Operating Activities = (a) - (b) - (c) - (d) - (e) = 1,332 - 484 - 226 - 35 - 177 = 410